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China: Country and Foreign Investment

Business Environment

This page was last updated on 2 July 2019.

In the World Justice Project Rule of Law Index, China was ranked 82nd out of 126 countries. The state is authoritarian and often behaves as if it was above the law and the constitution. This unpredictability is a headache for anyone trying to do business in the country.

A consequence of recent Chinese history is the dominance of 'the collective' in business situations. Collectives still exist as such, particularly in rural areas, but the mindset imbued by the Chinese educational system runs deep, even when an apparently 'modern', hi-tech business is being run. Of course, if you are dealing with a Western-educated Chinese, things may be different.

A successful negotiation and business relationship depends on recognizing that a contract is not necessarily worth the paper it’s written on. It may also be difficult to find the decision-makers among the group of Chinese with whom you are dealing.

Central to Chinese interpersonal culture is the concept of 'face'. In the collective, position depends on reputation, and nothing hurts self-esteem more than loss of face. A foreigner who is seen to cause such loss of face may have committed a very serious faux pas.

While it may be difficult at first to understand the relative positions of individuals in the group with which you are negotiating or dealing, there are some pointers. It is highly probable that the members of a team will enter a room in the order of their relative importance, especially in the presence of a foreigner; and junior members of the team will constantly defer to their seniors in conversation and in bodily behaviour.

Due to the importance attached to 'face', business cards have much greater importance in China than in the West where they have rather taken a back seat. Relative position among a group of Chinese will be reflected in the order they present their business cards, as well as on the cards themselves, if you can understand them! When presenting your business card, you should offer it with both hands; likewise, you should take a business card with both hands, study it carefully, and place it respectfully in a pocket or on the table in front of you.

Chinese names consist of a family name followed by one or two given names. Hence Hu Jintao is Mr Hu. First names are only used by family members or close friends. In business it is polite use titles when addressing people, hence Chairman Hu. Married women normally retain their maiden names except in very formal situations.

It is normal to shake hands when meeting someone, but a nod or slight bow is also often appropriate, particularly for someone you already know. A handshake may last quite a number of seconds and should not be very forceful. It is rude to look straight into the eyes of a Chinese person; more proper would be a quick glance then lowering the eyes as a sign of respect.

Guanxi

Guanxi, meaning 'connections', is often the key to getting things done in China, where very often it's not what you know but who you know – and how you know them. To succeed, a foreign investor or business partner will need to have close and appropriate relationships, not just with the government body and officials involved in the company formation and licensing process, but also with Chinese staff, suppliers, the tax office and other municipal authorities. Whereas in the West, business relationships can be conducted (if necessary) on a purely contractual basis ('you do your job and I'll do mine'), this can be counter-productive in China. Mutual respect based on familiarity established over a long period leads to a harmonious business relationship.

 

 

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